Three reports landed on Tuesday 27 October, and one of them missed the forecast by a wide margin in the good direction. The Conference Board’s consumer confidence index rose to 91.7 in October from a revised 84.2 in September, against a forecast of 80.5.

Confidence did the heavy lifting

The gain of 7.5 points was broad. The present situation index rose 8.6 points to 120.4, and the expectations index added 6.9 points to 72.6. The labor market differential, which compares the share of households calling jobs plentiful with the share calling them hard to get, improved 2.4 points to +5.3%. More respondents expected stock prices to rise than fall over the next year.

The Conference Board tied the rebound to cheaper gasoline. Twelve-month inflation expectations eased to 5.8%, which is still high. The board said elevated prices were likely holding back planned spending on services and big-ticket items.

Orders and housing

Durable goods orders rose 1.8% in September to $345.4 billion, well ahead of the 0.6% forecast. August was revised to a 0.1% gain from a 0.1% decline. Excluding transportation, orders rose 0.5%, so most of the headline came from volatile transport categories. Core capital goods orders, a guide to business equipment spending, rose 0.5% to $88.0 billion.

New home sales ran at a seasonally adjusted annual rate of 676,000, beating the 649,000 forecast. That was still 0.6% below August’s revised 680,000 and 5.3% below a year earlier. The median price was $400,400. Supply stood at 8.4 months, a level that favors buyers. Both changes sit within the survey’s margin of error.

What the market did

The S&P 500 rose 0.60% to 7,722 and the Nasdaq gained 1.18% to 26,477. The Dow barely moved, up 0.03% to 52,378. Technology and small caps led, while real estate trusts and consumer staples lagged.

Confidence supported sentiment, but the rest of the tape pointed elsewhere. Oil fell, with West Texas Intermediate down 1.83% to $99.90 and Brent down 1.67% to $113.88, and energy shares dropped more than 2%. Investors also positioned ahead of the Federal Reserve decision on Wednesday and large-cap technology earnings later in the week.

The bond market did not react. The 10-year Treasury yield closed at 4.99%, down 1 basis point from 5.00% on Monday. A confidence surprise this large would normally lift yields by raising the odds of firmer spending. The muted response suggests traders were waiting for the Fed and for Thursday’s personal consumption expenditures report, which will show how fast underlying prices are rising.

For equities, a stronger consumer helps retailers and discretionary names, but a rate rise before year end remains the larger risk to valuations.

For more, browse our full equity research reports, check the earnings calendar for what's coming up, or head back to the blog for the latest updates.